iStar Financial Announces Third Quarter 2012 Results - Adjusted income (loss) allocable to common shareholders for the third quarter 2012 was ($26) million.

- Net income (loss) allocable to common shareholders for the third quarter 2012 was ($72) million or ($0.86) per diluted common share.

- Subsequent to quarter end, the Company completed a new $1.8 billion, five-year secured term loan to refinance its 2011 A-1 / A-2 facilities.

- In connection with the new financing, the Company's corporate family rating was upgraded by Moody's to B2 and its long-term issuer credit rating was affirmed by S&P at B+.

NEW YORK, Oct. 26, 2012 /PRNewswire/ -- iStar Financial Inc. (NYSE: SFI) today reported results for the third quarter ended September 30, 2012.

Third Quarter 2012 Results

iStar reported net income (loss) allocable to common shareholders for the third quarter of ($71.8) million, or ($0.86) per diluted common share, compared to ($62.2) million, or ($0.71) per diluted common share, for the third quarter 2011. Results in the prior year period included a one-time $22.2 million gain from discontinued operations associated with a net lease asset portfolio sale.

Adjusted income (loss) allocable to common shareholders for the third quarter was ($26.0) million, compared to ($19.0) million for the third quarter 2011. Adjusted income (loss) represents net income computed in accordance with GAAP, prior to the effects of certain non-cash items, including depreciation, loan loss provisions and impairments.

Adjusted EBITDA for the quarter was $76.6 million, compared to $83.1 million for the same period last year. Please see the financial tables that follow the text of this press release for the Company's calculations of adjusted income and adjusted EBITDA, as well as reconciliations to GAAP net income (loss).

During the third quarter, iStar generated $318.0 million of proceeds from its portfolio, comprised of $157.9 million in principal repayments, $79.5 million of residential unit sales, $67.1 million from sales of owned real estate assets and $13.4 million from other investments. Additionally, the Company funded a total of $28.4 million in new and existing investments.

"We have continued to execute our corporate strategy to reduce overall debt levels, maximize the value of our existing portfolio and access the capital markets in order to position ourselves for increased investment activity," said Jay Sugarman, iStar's chairman and chief executive officer. "We are pleased with our overall progress in these areas as we head into 2013."

Capital Markets

During the quarter, iStar repaid $147.7 million on the A-1 tranche of its 2011 secured credit facility, bringing the outstanding balance to $498.3 million at the end of the quarter. The balance of the A-2 tranche of the 2011 secured credit facility at the end of the quarter was $1.45 billion.

On October 15, the Company closed on a new $1.82 billion senior secured credit facility due October 15, 2017, the proceeds of which were used to refinance the remaining balances of the 2011 A-1 / A-2 secured credit facilities. The transaction enabled iStar to unencumber certain liquid assets and provided long-term financing on a substantial portion of the Company's portfolio.

In response to the new financing, Moody's Investor Service upgraded iStar's corporate family rating to B2 and senior unsecured credit rating to B3. In addition, Moody's assigned a B1 rating to the new senior secured term loan and upgraded the A-1 and A-2 tranches of the Company's 2012 senior secured facilities to Ba3 and B1, respectively. In addition, Standard & Poor's affirmed both iStar's long-term issuer credit rating and its senior unsecured rating at B+ and assigned a BB- rating on the new senior secured term loan.

During the quarter, the Company closed on a $54.5 million secured, 10-year term loan, the proceeds of which was used to refinance existing debt on one net lease asset. The new loan bears interest at a rate of 4.85% versus 6.41% for the refinanced loan.

The Company also repaid $66.4 million on the A-1 tranche of its 2012 secured credit facility during the quarter, bringing the remaining outstanding balance to $262.3 million at September 30, 2012. Based on the total amount repaid, the Company has already exceeded the minimum cumulative amortization on the A-1 tranche of its 2012 secured credit facility of $123.0 million required to be paid before December 31, 2013. The balance of the A-2 tranche of the 2012 secured credit facility at the end of the quarter was $470.0 million.

The Company's leverage was 2.5x at September 30, 2012, unchanged from the prior quarter. Please see the financial tables that follow the text of this press release for a calculation of the Company's leverage. The Company's weighted average effective cost of debt for the third quarter was 6.5%. At the end of the quarter, cash and cash equivalents, including cash reserved for repayment of indebtedness, totaled $739.3 million.

Subsequent to quarter end, the Company repaid the remaining $460.7 million balance of its senior unsecured convertible notes due October 1, 2012 at maturity with cash.

Portfolio Overview

At September 30, 2012, the Company's total portfolio had a carrying value of $6.00 billion, gross of general loan loss reserves. The portfolio was comprised of $2.16 billion of loans, $1.54 billion of net lease assets, $1.88 billion of owned real estate and $419.6 million of other investments.

At September 30, 2012, the Company's $1.52 billion of performing loans had a weighted average last dollar loan-to-value ratio of 70.8% and a weighted average maturity of 2.9 years. The performing loans consisted of 46% floating rate loans that generated a weighted average effective yield for the quarter of 6.4%, or approximately 638 basis points over the average one-month LIBOR rate for the quarter, and 54% fixed rate loans that generated a weighted average effective yield for the quarter of 8.5%. The weighted average risk rating of the Company's performing loans improved to 3.08 from 3.16 in the prior quarter. Included in the performing loan balance were $18.8 million of watch list assets, decreasing from $75.0 million in the prior quarter.

At September 30, 2012, the Company's non-performing loans (NPLs) had a carrying value of $639.9 million, net of $490.6 million of specific reserves. This compares to $639.0 million, net of $491.3 million of specific reserves, at the end of the prior quarter.

For the third quarter, the Company recorded $16.8 million in loan loss provision versus $26.5 million in the prior quarter. At September 30, 2012, loan loss reserves totaled $543.5 million or 20.4% of total gross carrying value of loans. This compares to loan loss reserves of $563.8 million or 19.8% of total gross carrying value of loans at June 30, 2012.

At the end of the quarter, the Company's $1.54 billion of net lease assets, net of $352.7 million of accumulated depreciation, were 91.3% leased with a weighted average remaining lease term of 12.0 years. The weighted average risk rating of the Company's net lease assets was 2.70, unchanged from the prior quarter. The Company's occupied net lease assets generated a weighted average effective yield of 9.6% and the total net lease assets generated a weighted average effective yield of 8.6% for the quarter.

At the end of the quarter, the Company's $1.88 billion owned real estate portfolio was comprised of $985.5 million of operating commercial real estate assets and $896.1 million of land assets. A portion of these assets have been classified as other real estate owned (OREO), based on management's current intention to market and sell the assets in the near term, while the remainder are considered real estate held for investment (REHI), based on management's current intention and strategy to hold, operate or develop the assets over a longer term.

The Company's owned real estate portfolio generated $29.9 million of combined revenue and income from sales of residential property units, offset by $24.5 million of net expenses for the quarter.

[Financial Tables to Follow]

*                   *                *

iStar Financial Inc. (NYSE: SFI) is a fully-integrated finance and investment company focused on the commercial real estate industry. The Company provides custom-tailored investment capital to high-end private and corporate owners of real estate and invests directly across a range of real estate sectors. The Company, which is taxed as a real estate investment trust ("REIT"), has invested more than $35 billion over the past two decades. Additional information on iStar Financial is available on the Company's website at www.istarfinancial.com.

iStar Financial will hold a quarterly earnings conference call at 10:00 a.m. ET today, October 26, 2012. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through iStar Financial's website, www.istarfinancial.com, under the "Investor Relations" section. To listen to the live call, please go to the website's "Investor Relations" section at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those who are not available to listen to the live broadcast, a replay will be available shortly after the call on the iStar Financial website.

(Note: Statements in this press release which are not historical fact may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although iStar Financial Inc. believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from iStar Financial Inc.'s expectations include the Company's ability to generate liquidity and to repay indebtedness as it comes due, additional loan loss provisions, the amount and timing of asset sales (including OREO assets), increases in NPLs, repayment levels, the Company's ability to reduce its indebtedness, the Company's ability to maintain compliance with its debt covenants, economic conditions, the availability of liquidity for commercial real estate transactions and other risks detailed from time to time in iStar Financial Inc.'s SEC reports.)

iStar Financial Inc.

Consolidated Statements of Operations

(In thousands)

(unaudited)


Three Months Ended


Nine Months Ended


September 30,


September 30,


2012

2011


2012

2011

REVENUES












Interest income

$31,171

$45,851


$104,822

$186,805

Operating lease income   

38,582

38,322


114,990

114,076

Other income

16,494

10,140


55,125

26,412

  Total revenues

$86,247

$94,313


$274,937

$327,293







COSTS AND EXPENSES












Interest expense

$91,777

$90,659


$271,595

$255,505

Operating costs - net lease assets 

5,548

4,845


13,676

13,515

Operating costs - REHI and OREO

24,454

19,792


68,952

55,582

Depreciation and amortization

16,787

13,953


50,263

43,777

General and administrative(1)

19,037

26,978


61,674

77,077

Provision for loan losses

16,834

9,232


60,865

30,462

Impairment of assets

6,542

9,912


29,541

14,165

Other expense

2,394

3,974


6,754

7,156

  Total costs and expenses

$183,373

$179,345


$563,320

$497,239







Income (loss) before earnings from equity method investments 






  and other items

($97,126)

($85,032)


($288,383)

($169,946)

  Gain (loss) on early extinguishment of debt, net

(3,694)

(3,207)


(6,858)

102,348

  Earnings from equity method investments

22,719

10,817


75,925

54,881

Income (loss) from continuing operations before income taxes

($78,101)

($77,422)


($219,316)

($12,717)

  Income tax expense

(1,791)

(1,354)


(6,540)

(9,731)

Income (loss) from continuing operations

($79,892)

($78,776)


($225,856)

($22,448)

  Income from discontinued operations 

2

1,917


1,532

3,470

  Gain from discontinued operations

-

22,198


27,257

22,198

  Income from sales of residential property

15,584

-


35,583

-

Net income (loss)

($64,306)

($54,661)


($161,484)

$3,220

  Net (income) loss attributable to noncontrolling interests

666

1,002


1,363

558

Net income (loss) attributable to iStar Financial Inc.

($63,640)

($53,659)


($160,121)

$3,778

  Preferred dividends

(10,580)

(10,580)


(31,740)

(31,740)

   Net (income) loss allocable to HPUs and 






  Participating Security holders(2)

2,436

2,008


6,288

845

Net income (loss) allocable to common shareholders

($71,784)

($62,231)


($185,573)

($27,117)







(1) For the three months ended September 30, 2012 and 2011, includes $3,512 and $7,153 of stock-based compensation expense, respectively.  For the nine months ended September 30, 2012 and 2011, includes $11,625 and $15,622 of stock-based compensation expense, respectively.

(2) HPU Holders are current and former Company employees who purchased high performance common stock units under the Company's High Performance Unit Program. Participating Security holders are Company employees and directors who hold unvested restricted stock units, restricted stock awards and common stock equivalents granted under the Company's LTIP that are eligible to participate in dividends.







 

iStar Financial Inc.

Earnings Per Share Information

(In thousands, except per share amounts)

(unaudited)








Three Months Ended


Nine Months Ended


September 30,


September 30,


2012

2011


2012

2011

EPS INFORMATION FOR COMMON SHARES












Income (loss) attributable to iStar Financial Inc.






    from continuing operations(1) 






Basic and Diluted

($0.86)

($0.97)


($2.55)

($0.58)

Net income (loss) attributable to iStar Financial Inc.






Basic and Diluted

($0.86)

($0.71)


($2.22)

($0.30)

Weighted average shares outstanding






Basic and Diluted

83,629

87,951


83,765

91,020







Common shares outstanding at end of period

83,639

80,509


83,639

80,509







EPS INFORMATION FOR HPU SHARES












Income (loss) attributable to iStar Financial Inc. 






    from continuing operations(1) 






Basic and Diluted

($162.40)

($184.14)


($482.06)

($108.06)

Net income (loss) attributable to iStar Financial Inc. 






Basic and Diluted

($162.40)

($133.87)


($419.20)

($56.33)

Weighted average shares outstanding






Basic and diluted

15

15


15

15







(1) Adjusted for preferred dividends, net (income) loss from noncontrolling interests and income from sales of residential property. 


 

iStar Financial Inc.

Consolidated Balance Sheets

(In thousands)

(unaudited)


As of


As of


September 30, 2012


December 31, 2011

ASSETS








Loans and other lending investments, net

$2,118,723


$2,860,762

Net lease assets, net

1,540,464


1,702,764

Real estate held for investment, net

1,174,955


1,228,134

Other real estate owned

706,715


677,458

Other investments

419,648


457,835

Cash and cash equivalents

284,659


356,826

Restricted cash

493,386


32,630

Accrued interest and operating lease income receivable, net

12,982


20,208

Deferred operating lease income receivable

81,416


73,368

Deferred expenses and other assets, net

107,471


107,852

Total assets

$6,940,419


$7,517,837





LIABILITIES AND EQUITY








Accounts payable, accrued expenses and other liabilities

$136,658


$105,357





Debt obligations, net:




  Secured credit facilities

2,647,919


2,393,240

  Unsecured senior notes

2,401,431


2,805,817

  Secured term loans

241,288


296,643

  Unsecured credit facility

-


243,650

  Other debt obligations

98,222


98,190

 Total debt obligations, net

5,388,860


5,837,540





Total liabilities

$5,525,518


$5,942,897





Redeemable noncontrolling interests

$14,208


$1,336





Total iStar Financial Inc. shareholders' equity

1,325,650


1,528,356

Noncontrolling interests

75,043


45,248

Total equity

$1,400,693


1,573,604





Total liabilities and equity

$6,940,419


$7,517,837





 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


Three Months Ended


Nine Months Ended


September 30,


September 30,


2012

2011


2012

2011

NON-GAAP FINANCIAL MEASURES












Reconciliation of Net Income to Adjusted Income






Net income (loss) allocable to common shareholders

($71,784)

($62,231)


($185,573)

($27,117)

Add: Depreciation and amortization

16,787

15,077


51,205

47,142

Add: Provision for loan losses

16,834

9,232


60,865

30,462

Add: Impairment of assets

6,542

9,912


30,061

14,140

Add: Stock-based compensation expense

3,512

7,153


11,625

15,622

Less: (Gain)/loss on early extinguishment of debt, net

3,694

3,207


6,858

(102,348)

Less: HPU/Participating Security allocation

(1,555)

(1,394)


(5,264)

(152)

Adjusted income (loss) allocable to common shareholders(1)

($25,970)

($19,044)


($30,223)

($22,251)







Reconciliation of Net Income to Adjusted EBITDA






Net income (loss) 

($64,306)

($54,661)


($161,484)

$3,220

Add: Interest expense 

91,777

91,777


272,659

258,183

Add: Income tax expense 

1,791

1,354


6,540

9,731

Add: Depreciation and amortization

16,787

15,077


51,205

47,142

EBITDA

$46,049

$53,547


$168,920

$318,276

Add: Provision for loan losses

16,834

9,232


60,865

30,462

Add: Impairment of assets

6,542

9,912


30,061

14,140

Add: Stock-based compensation expense

3,512

7,153


11,625

15,622

Less: (Gain)/loss on early extinguishment of debt, net

3,694

3,207


6,858

(102,348)

Adjusted EBITDA(1)

$76,631

$83,051


$278,329

$276,152







(1) Adjusted Income (loss) allocable to common shareholders and Adjusted EBITDA should be examined in conjunction with net income (loss) as shown in the Consolidated Statements of Operations. These non-GAAP financial measures should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's performance, or to cash flows from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor are they indicative of funds available to fund the Company's cash needs or available for distribution to shareholders. It should be noted that the Company's manner of calculating these non-GAAP financial measures may differ from the calculations of similarly-titled measures by other companies. Management believes that it is useful to consider Adjusted Income and Adjusted EBITDA because the adjustments are non-cash items that do not necessarily reflect an actual change in the long-term economic value or performance of our assets. Management considers these non-GAAP financial measures as supplemental information to net income in analyzing the performance of our underlying business. Interest expense and depreciation and amortization exclude adjustments from discontinued operations of $1,118 and $1,124, respectively, for the three months ended September 30, 2011.  Interest expense, depreciation and amortization, and impairment of assets exclude adjustments from discontinued operations of $1,064, $943, and $520, respectively, for the nine months ended September 30, 2012 and $2,678, $3,366 and ($25), respectively, for the nine months ended September 30, 2011.

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)


Three Months Ended


September 30, 2012

OPERATING STATISTICS




Expense Ratio


General and administrative expenses - annualized (A) 

$76,148

Average total assets (B) 

$7,063,316

Expense Ratio (A) / (B)

1.1%



Interest Coverage


Adjusted EBITDA (C)

$76,631

Interest expense and preferred dividends (D)

$102,357

Adjusted EBITDA / Interest Expense and Preferred Dividends (C) / (D)

0.7x




As of


September 30, 2012

Leverage


Book debt

$5,388,860

Less: Cash and cash equivalents, including cash reserved for repayment of indebtedness

(739,315)

Net book debt (E)

$4,649,545



Book equity

$1,400,693

Add: Accumulated depreciation

427,749

Add: General loan loss reserves

37,600

Sum of book equity, accumulated depreciation and general loan loss reserves (F)

$1,866,042

Leverage (E) / (F)

2.5x



 

 

iStar Financial Inc.

Supplemental Information

(In thousands)

(unaudited)









As of









September 30, 2012

UNFUNDED COMMITMENTS


















Performance-based commitments








$83,597

Strategic investments








39,461

Discretionary fundings








167

Total Unfunded Commitments








$123,225










UNENCUMBERED ASSETS / UNSECURED DEBT


















Unencumbered assets (A) (1)








$3,790,779

Unsecured debt (B)








$2,520,360

Unencumbered Assets / Unsecured Debt (A) / (B)








1.5x




























LOANS AND OTHER LENDING INVESTMENTS CREDIT STATISTICS






















As of





September 30, 2012


December 31, 2011

Carrying value of NPLs /









   As a percentage of total carrying value of loans




$639,907

30.2%


$771,196

27.1 %










NPL asset specific reserves for loan losses /









   As a percentage of gross carrying value of NPLs(2)




$490,639

43.4%


$557,129

41.9 %










Total reserve for loan losses /









   As a percentage of total gross carrying value of loans(2)




$543,498

20.4%


$646,624

18.5 %










(1) Unencumbered assets is calculated in accordance with the indentures governing the Company's unsecured debt securities.

(2) Gross carrying value represents iStar's carrying value of loans, gross of loan loss reserves.  










 

iStar Financial Inc.

Supplemental Information

(In millions)

(unaudited)
















PORTFOLIO STATISTICS AS OF SEPTEMBER 30, 2012(1) 

























Asset Type












Total


% of Total

First Mortgages / Senior Loans










$1,635


27.2%

Net Lease Assets












1,540


25.7%

Real Estate Held for Investment










1,175


19.6%

Other Real Estate Owned












707


11.8%

Mezzanine / Subordinated Debt










521


8.7%

Other Investments












420


7.0%

Total












$5,998


100.0%
















Geography












Total


% of Total

West












$1,380


23.0%

Northeast












1,099


18.3%

Southeast












856


14.3%

Southwest












798


13.3%

Mid-Atlantic












591


9.8%

Various












405


6.8%

International












358


6.0%

Central












320


5.3%

Northwest












191


3.2%

Total












$5,998


100.0%
















Property Type


Performing
Loans


Net Lease
Assets


NPLs


REHI


OREO


Total


% of Total

Land


$124


$56


$216


$769


$128


$1,293


21.5%

Condominium


264


-


65


-


389


718


12.0%

Office


115


461


36


67


-


679


11.3%

Industrial / R&D


87


460


8


48


-


603


10.1%

Retail


252


53


133


87


62


587


9.8%

Entertainment / Leisure


62


418


73


-


-


553


9.2%

Mixed Use / Mixed Collateral

236


-


-


170


61


467


7.8%

Hotel


210


92


94


34


22


452


7.5%

Other Property Types


166


-


15


-


45


226


3.8%

Other Investments


-


-


-


-


-


420


7.0%

Total


$1,516


$1,540


$640


$1,175


$707


$5,998


100.0%

















(1) Based on carrying value of the Company's total investment portfolio, gross of general loan loss reserves.


 

SOURCE iStar Financial Inc.



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